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Business Ethics

The profit motive

It is generally assumed that Businesses are primarily motivated by the desire to make profit.

However, the desire to make profit may tempt business leaders to act in ways that are regarded as unethical.

We still live in an era where our moral conduct is governed by the Christian ethic, or at least by the legacy of it. The Christian ethic teaches, among other things:

1		“Love your neighbour as you love yourself.”
2		“Do unto others as you would be done by.”

(It is possible to argue that these are the same rule.) This ethic places constraints on our actions, and teaches us that it is wrong to act selfishly at certain times. This ethic is sometimes known as a duty ethic.

The need for such an ethic is created because in life, as individuals, we are presented with many opportunities to act selfishly, and by doing so, break these rules. The ethical choices facing business leaders are similar; indeed, the temptations to place the making of profit above all other concerns are often greater.

In addition to this duty ethic there may be felt to be an appeal to business leaders to enhance the wider interests of society — to help disadvantaged groups and benefit everyone through, what is effectively, acts of charity. People motivated by this desire to enhance the welfare of all are motivated by benevolence or altruism. The religious term for this kind of motive is charity. St. Paul wrote, “Faith, hope and charity; but the greatest of these is charity.” (I Corinthians 13:1

Stakeholders and Duty

But it is not only the shareholders that have a vested interest in the success of the business, and recognizing that there are other groups or parties that have a “stake” in the business is important.

In addition to shareholders, these include:

1		Customers
2		Employees
3		Managers and directors
4		The government
5		The local community
6		The national community
7		Environmental pressure groups

In other words, anyone who is directly or remotely connected with the business.

It can be argued that businesses should take the interests of all stakeholders into consideration when making a business decision. Business leaders have an ethical duty to do so.

Prudential reasons for acting ethically

A perhaps more cynical approach to this problem is to argue that businesses that fail to uphold the appearance of the duty ethic will also, in the long run, suffer in terms of their profits. In other words, there is no conflict between the profit motive and either the duty ethic or benevolence, because in the long run breaking the code established by the duty ethic or not being benevolent does not pay.

The reason for this is that the business gains a good reputation by being ethical, and a bad reputation by pursuing (short-term) profits at the expense ethics.

Thus businesses that act ethically attract more customers, attract better quality employees, avoid unfavourable media attention and gain a good press.

The theory of rational egoism

Our modern economic theory is based to an extent on a theory of rational egoism. This theory states that in a modern economy where individuals are subject to appropriate control and constraints from a democratically elected government, then the sum total of individually selfish acts all adds up to something that is beneficial to society as a whole.

For example, a business leader might, for the sake of profits, decide to build a bridge over a river. However, although he does this only for the sake of the profit he will make, he benefits society as a whole, which gains a bridge that everyone can use.

Likewise, businesses that do not make profits go out of businesses. So there is a danger when running a business of not keeping the profit motive central. Once profits have been made they can be used in a number of ways. Businesses may choose to use some of these profits in charitable projects.

One issue is the cost of pollution. This brings us into the domain of welfare economics, which is the subject of another unit. However, it could be argued that it is the duty of governments to ensure that all private businesses must pay, in some way, for the cost of the pollution they create. In other words, if society as a whole, through its government, does not ensure that businesses pay for all the costs of their activities, then there will be a temptation for businesses to create pollution.

Pollution is the inevitable consequence of business activity. As business activity benefits society as a whole (creates products and jobs, for instance), some pollution must be tolerated. Pollution is a cost to society, but the products of business are a benefit to society. The problem is not to eradicate pollution as a whole (though that would certainly be desirable), but to ensure that the balance between the costs of business (including the pollution) and the benefits of business is correct.

Students wishing to investigate this approach further should study welfare economics.

Religious reasons for acting ethically

Some people continue to believe that God does intervene in human affairs, either

1		Through his providence in that he alters the course of history
2		Through his judgement in deciding who shall be saved (and go to heaven) and who shall be damned (and go to hell).

Discussion of providence and judgement have become unpopular in modern times, and it is in fact very rare to see any textbook of business studies even mention these theories. From a historical point of view that is odd, since these two concepts have dominated the beliefs of Western society at least up until very recently.

We think that students of business studies should be aware that many people continue to believe in these concepts, either consciously or unconsciously, so these ideas remain current in our society and influence the decisions of business leaders, manager and employees on the one side, and the decisions of customers and clients on the other.